LONDON, May 24 /PRNewswire/ -- London International Group plc (LIG) (Nasdaq: LONDY), the global manufacturer of Durex condoms, Regent medical gloves and Marigold specialist industrial gloves, today announced preliminary results for the year ended March 31, 1999. Highlights of the year's performance include: -- Total sales of 334.5 million British pounds sterling (pounds) (U.S. $554.7 million) (1998: 344.8 million pounds (U.S. $571.7 million)) -- core business sales 262.4 million pounds (U.S. $435.1 million) (1998: 259.5 million pounds (U.S. $430.3 million)) -- Operating profit, before exceptional items, of 45.0 million pounds (U.S. $74.6 million) (1998: 44.5 million pounds restated** (U.S. $73.8 million)) -- Pre-tax profit, before exceptional items, of 39.5 million pounds (U.S. $65.5 million) (1998: 39.2 million pounds restated** (U.S. $65.0 million)) -- Earnings per share, before exceptional items, were 8.84p up 9.8% (U.S. $0.15) (1998: 8.05p restated** (U.S. $0.13)) -- Total dividends for the year up 12.5% to 3.60p (U.S. $0.06) (1998: 3.20p (U.S. $0.05)) Commenting on today's results, Nick Hodges, Chief Executive, said: "1998/99 has been a challenging year for the Group; Durex condoms have been launched in the US, future manufacturing costs have been reduced with the closure of our Italian condom facility and our examination glove business has also been substantially restructured. Despite these considerable challenges, our businesses overall have performed well enabling the Group to announce improved results over last year. "The boards of Seton Scholl Healthcare plc (Seton Scholl) and LIG today announced that they had agreed the terms of a proposed merger between the two Groups to create SSL International plc by means of a recommended offer by Seton Scholl for the entire issued share capital of LIG. "This offer is not being made, directly or indirectly, in the United States, Canada, Australia or Japan." London International Group plc is the world leader in thin-film barrier technology. The London-based company manufactures and distributes a broad range of health and personal products, including Durex(R), the world's leading condom brand with 21 percent of the global market; Regent(R) and Biogel(R) medical gloves; and Marigold(R) specialist industrial gloves. London International operates in more than 140 countries worldwide and has 12 wholly or jointly owned manufacturing facilities in eight countries. U.S. headquarters are located in Norcross, Ga. London International Group plc Preliminary Results for the Year Ended March 31, 1999 Group Results In the year ended March 31, 1999, the Group achieved total sales of 334.5 million pounds (1998: 344.8 million pounds) with overall core business sales up 5.7% to 262.4 million pounds (1998: 259.5 million pounds) on a comparable basis*. Overall sales in the second half totaled 190.9 million pounds (1998: 189.2 million pounds), up 3.1%. Operating profit, before exceptional items, was 45.0 million pounds (1998: 44.5 million pounds restated**) after continued investment in research and development and marketing totaling 9.8 million pounds (1998: 8.3 million pounds) and 34.8 million pounds (1998: 35.3 million pounds) respectively. Second half operating profit before exceptional items was 35.0 million pounds (1998: 32.4 million pounds restated). The Group's overall operating margin was 13.5% (1998: 12.9% restated) or 16.4% (1998: 14.5% restated) excluding examination gloves which, principally as a consequence of under utilized manufacturing capacity, lost 9.4 million pounds (1998: 3.2 million pounds) at the operating level. Total operating margin for the second half of 1998/99 was 18.3% (1998: 17.1%). After interest totaling 6.1 million pounds (1998: 5.9 million pounds), 7.4 times covered by operating profit before exceptional items (1998: 7.5 times), and associates' earnings of 0.6 million pounds, consolidated pre-tax profit was 39.5 million pounds before exceptional items (1998: 39.2 million pounds restated). Second half pre-tax profit amounted to 32.4 million pounds (1998: 30.0 million pounds). Net exceptional items totaled 15.0 million pounds (1998: 12.0 million pounds) and related to: the closure of the Group's Italian condom manufacturing facility; the restructuring of its consumer sales forces in Italy and Spain; the relocation of the Group's head office to Hertfordshire; and the sale of certain brands. The Group's pre-exceptional tax rate has been reduced to 22.0% (1998: 26.0% restated) and reflects the full benefit of dividends paid as foreign income dividends, and the utilization of ACT previously written off. The directors expect this level of tax charge to continue in the foreseeable future. After taxation totaling 7.1 million pounds (1998: 10.2 million pounds) and minority interests of 0.1 million pounds (1998: 1.2 million pounds), the Group achieved pre-exceptional earnings per share of 8.84p (1998: 8.05p restated) for the year; pre-exceptional earnings per share were 7.34p in the second half of the year (1998: 6.39p), up 14.9%. After exceptional items, earnings per share were 5.00p (1998: 4.58p restated). Accounting Changes In the light of developments in accounting for intangible assets, the Group has revised its accounting policy for purchased trademarks, which previously were not amortized. This change of policy has had no effect on profits for the year to March 31, 1999 but reduced the profit for the year ended March 31, 1998 by 1.6 million pounds. Dividend In view of the proposed merger with Seton Scholl Healthcare plc (Seton Scholl), the Board proposes to pay a second interim dividend of 2.70p per share in lieu of a final dividend, provided the offer implementing the merger becomes wholly unconditional. The dividend will be payable to shareholders on the register at close of business on the date when the offer becomes, or is declared unconditional in all respects. This second interim dividend of 2.70p compares with the final dividend for 1998 of 2.40p and makes a total dividend for the year of 3.60p (1998: 3.20p), an increase of 12.5%. The second interim dividend will be paid within 14 days following the date on which the offer becomes or is declared unconditional in all respects. If the offer becomes wholly unconditional, no final dividend will be declared in respect of the year ended 31 March 1999. Financing The Group's net debt as at 31 March 1999 amounted to 77.8 million pounds (1998: 67.1 million pounds) after acquisition costs totaling 10.2 million pounds (1998: 6.9 million pounds) and capital expenditure of 9.2 million pounds (1998: 16.1 million pounds). Net cash flow from operating activities amounted to 30.7 million pounds (1998: 27.9 million pounds) after a net increase in working capital of 5.3 million pounds (1998: 14.2 million pounds). Before acquisition costs the Group had net positive cash flow of 1.3 million pounds (1998: negative 2.5 million pounds). As previously announced, the introduction of exchange control legislation in Malaysia in September 1998, resulted in the Group being required to cancel the forward exchange contracts it had previously put in place to hedge its exposure to the Malaysian Ringgitt. As discussed in the Interim Results statement, this had the impact of reducing profits for the year by approximately 2 million pounds. Notwithstanding the adverse impact of this change, the overall net exchange impact on operating profit for the year was favorable to the extent of approximately 4 million pounds (1998: neutral). Operating Review LIG's performance this year has, as outlined in its 1998/99 Interim Results statement, been impacted by two major initiatives: the fundamental reshaping of its US condom business with the launch of Durex condoms; and lower sales of standard powder-free examination gloves ahead of the launch of its new coated examination glove range during 1998/99. Gross profit, before exceptional items, amounted to 194.6 million pounds (1998: 195.9 million pounds), a margin of 58.2% compared to 56.8% last year. Condoms Overall sales of condoms grew by an underlying 2.3% to 132.8 million pounds (1998: 131.0 million pounds). Branded condoms sales rose 2.0% to 114.0 million pounds (1998: 112.8 million pounds). Excluding the performance of US condoms which have undergone a major restructuring, overall sales of branded condoms grew by 4.1% to 101.2 million pounds (1998: 96.3 million pounds). Sales in Northern Europe, including the UK, increased by 6.6% with good growth in France, the Netherlands and the UK, up 4.8%, 11.3% and 11.9% respectively, supported by several new product launches including Durex Gold and Durex Topaz. Encouraging progress has been made by Durex Avanti, the Group's non-latex condom for men, and capacity is currently being expanded at LIG's manufacturing facility in Cambridge, UK, to enable future launches of this product in Europe and Asia. Overall sales in Southern Europe totaled 31.3 million pounds (1998: 31.1 million pounds), down 2.8% due primarily to the impact of restructuring the condom and health and beauty aids (HABA) product sales force in Italy during the year. Sales in Asia Pacific continued to grow strongly, up 15.4% to 13.5 million pounds (1998: 12.5 million pounds) despite challenging economic conditions in many markets. Good growth continued in Thailand, where the Durex brand has become overall market leader, and in Hong Kong and Malaysia. Since the year end, the Group has opened its joint venture condom facility in Qingdao, the People's Republic of China, and is launching its new Durex condom range for sale specifically across China. Overall sales in the Americas fell by 2.9% to 36.0 million pounds (1998: 39.6 million pounds) following the Group's decision to withdraw its six existing US condom brands from the market and consolidate its position with the launch of a new Durex range. Although it is still early days, encouraging progress is being made and the Group's market share, as confirmed by independent market analysis, has risen during the last quarter to approximately 16.7% by value. Sales of unbranded condoms rose by 4.1% to 18.8 million pounds (1998: 18.2 million pounds). Medical Gloves Total sales of medical gloves were 92.1 million pounds (1998: 95.0 million pounds), up an underlying 7.4% after adjusting for sales of powdered examination gloves which the Group ceased manufacturing in January 1998. Sales of surgical gloves continued to grow strongly, up 13.2% to 88.3 million pounds (1998: 78.5 million pounds). This performance was underpinned by an excellent performance in the US with sales up 18.9%, and good results in the UK and Nordic region, up 6.8% overall. New products launched during the year include the Biogel Orthopaedic glove and the Biogel Underglove glove -- an extension of the Group's previously launched patented puncture indicator glove. Sales of examination gloves totaled 3.8 million pounds (1998: 16.5 million pounds) reflecting the Group's decision to exit powdered gloves, and its inability to compete effectively in the standard powder-free segment as a result of lower priced Asian made gloves. This has resulted in both increasing over capacity and price reductions in the market. The consequent increasing under-utilization of the Group's examination glove facility in Dothan, Alabama produced manufacturing inefficiencies which reduced the Group's operating profits in 1998/99 by approximately 6 million pounds compared to last year and led to the profits downgrade in December. In January 1999, LIG announced that it was no longer viable for it to compete in the standard powder-free segment of the examination gloves market and that it was ceasing the manufacture of such products. As planned, during the second half of the year the Group launched its new premium priced Skinsense Biogel and Skinsense Biolite coated, powder-free examination gloves in the US and Northern Europe. While continued pricing pressure is anticipated in the standard examination glove segment, the Group's strategy remains focused on carving out niches with these new premium products among those healthcare workers who require products which offer a high level of protection and performance. Despite the action already taken to reduce ongoing examination glove manufacturing costs, it is necessary to reduce the costs of the new, coated powder-free gloves further to compete effectively against products manufactured predominantly in South East Asia. LIG has therefore announced today its decision to close its US examination glove manufacturing plant in Dothan, Alabama and to transfer production of the new, coated powder-free examination gloves to the Group's surgical glove plant in Kulim, Malaysia. Once fully implemented, this action should substantially reduce examination glove manufacturing costs. The financial implications of this closure are discussed in more detail below. Industrial Gloves Industrial gloves sales have continued to grow strongly, up 15.0% to 37.5 million pounds (1998: 33.5 million pounds). Sales in Northern Europe rose 11.2% with good performances in Germany, the Netherlands and the UK. Encouraging progress continues across Southern Europe with overall sales up 21.9% to 3.9 million pounds (1998: 3.1 million pounds). Steady progress has also been maintained in the Americas with sales up 21.2% to 10.2 million pounds (1998: 9.5 million pounds), underpinned by 19.3% growth in the US and 24.0% growth in Canada. Non-core Products Sales of household gloves totaled 18.5 million pounds (1998: 20.7 million pounds), down 12.4%. Competition from low cost Asian manufactured product in this largely commodity sector has intensified following the currency devaluation of 1998. Sales of the Group's HABA brands amounted to 53.6 million pounds (1998: 64.6 million pounds), reflecting the disposal in March 1998 of its US manicure implements business, Cook Bates. Following the sale of the Ico thermometer brand and various other HABA brands announced in January 1999, the Group has restructured its sales forces in Italy and Spain to provide greater focus on the Durex condom brand and on a smaller range of HABA products. LIG intends to retain its Sauber and Mister Baby HABA brands, which each enjoy strong positions in these Southern European markets and provide support to the marketing of LIG's core condom business in the pharmacy sector. Acquisitions and Disposals In September 1998, the Group acquired the 40% minority interests in its Thai condom manufacturing and marketing joint venture for a total of 7.1 million pounds, including fees, in cash. As a result, the Group now has 100% control of its lowest cost, highest quality branded condom factory. The Group has also negotiated to extend its option to purchase Phoenix Medical Technology Inc., a US manufacturer of latex and non-latex gloves, for 4.1 million pounds plus the assumption of Phoenix liabilities estimated at 4.5 million pounds. The extension this option, which is subject to Phoenix shareholders' approval, will now expire in early 2000. The Group has continued to dispose of non-core HABA brands announcing in January the sale of Ico thermometer and other HABA brands for approximately 2.7 million pounds in cash excluding stock. Rationalization and Restructuring On November 21 the Group ceased production at its condom manufacturing facility near Bologna, Italy. The total cost of this initiative, together with the restructuring of its condom and HABA sales forces in Southern Europe, and relocation of the Group's headquarters which will result in a small number of job losses, is included in the net 15.0 million pounds exceptional charge made in 1998/99. As part of LIG's ongoing strategy to reduce operating costs and improve long term profitability, the Group has announced today the transfer of its examination glove production to Malaysia and the resulting closure of its existing manufacturing facility in Dothan, Alabama. During the next 12 months all relevant equipment will be transferred to the Group's existing surgical gloves facility in Kulim, Malaysia. This facility is currently operating at full capacity and the transfer of manufacturing equipment for the production of Skinsense Biogel examination gloves will also provide valuable additional capacity for surgical gloves. In addition, the Group has also announced today the closure of its separate branded condom facility located in Dothan, Alabama and the transfer of this capacity to Thailand. The Group's Thai condom facility is currently being substantially expanded and completion is expected by summer 2000. The Group's remaining US condom facility in Eufaula, Alabama will be unaffected and will continue to operate as a high volume, stand alone plant manufacturing unbranded condoms. Expanding capacity at the Thai factory and transferring production from the US and our now closed Italian facility, should, when fully implemented, enable the Group substantially to reduce its overall condom manufacturing costs. As a result of these cost reduction initiatives and the loss in the US of approximately 400 jobs, the Group intends to make a 15.0 million pounds exceptional charge in 1999/2000, of which 7.0 million pounds is expected to be utilized in cash. Senior Management It was also announced today that Gareth Clarke, currently Divisional Managing Director for the Americas, is to be succeeded in that role by Andrew Slater, Divisional Managing Director Northern Europe. Gareth Clarke will hand over responsibility for the US to Andrew Slater on a phased basis, remaining as a main board director of LIG until completion of the proposed merger with Seton Scholl. * % comparisons of sales performance with the previous year are all stated on an underlying basis after eliminating the effects of acquisitions, brand disposals and harmonizing currency exchange rates. ** Numbers restated to reflect accounting policy change relating to treatment of intangible assets.  